Bloomberg News

RWE Profit Slumps 20% on Nuclear Shutdowns, Lower Gas Sales

May 10, 2012

RWE AG (RWE), Germany’s second-biggest utility, said first-quarter profit dropped 20 percent as Chancellor Angela Merkel’s nuclear phase-out curbed power- generation earnings and gas sales fell.

Recurrent net income, the measure used to calculate the dividend, fell to 1.29 billion euros ($1.67 billion) from 1.61 billion euros a year earlier, the Essen-based company said today in a statement. That’s in line with the 1.33 billion-euro average estimate of 14 analysts surveyed by Bloomberg.

RWE and larger peer EON AG (EOAN) are overhauling operations after Merkel ordered the permanent halt of all nuclear reactors by 2022 following Japan’s Fukushima disaster. RWE’s earnings were hurt by a loss of revenue from two atomic plants taken offline in the first wave of shutdowns. The company sold 9 percent less power in the quarter, while gas sales volumes shrank 12 percent.

The lower results were “largely due to the deterioration of power-generation margins and heavy burdens suffered in the gas midstream business,” Chief Executive Officer Jurgen Grossman said in the statement, while maintaining guidance for the year. RWE will “make up lost ground” because the effects from Germany’s energy-policy change were “one-off,” he said.

Power Margins

Electricity margins deteriorated in the U.K., where RWE was forced to close Europe’s biggest biomass power plant, the 750- megawatt Tilbury station, in February after a fire. The company said it may resume operations at one unit in June. RWE dropped plans to build a nuclear plant in Britain earlier this year.

The company expects full-year earnings to be similar to 2011 and forecast a conclusion of talks on long-term gas contracts next year.

“Management has confirmed guidance of a flat year,” John Musk, an analyst at RBC Capital Markets, wrote in a note to investors. “While unlikely to be a catalyst to outperformance today these results give confidence.”

Shares Decline

RWE fell 1.5 percent, to 31.675 euros a share, at the 5:30 p.m. close in Frankfurt trading. The stock has gained 17 percent this year, valuing the company at about 19.4 billion euros.

“The prospects are brightening,” Grossman said in the statement. “This is not yet reflected in the figures for the first quarter.”

Electricity sold in the Netherlands and Belgium fell about 8 percent in the quarter, RWE said. Increased competition in Hungary drove down sales in central, eastern and southeastern Europe, while the German market showed the sharpest decline in gas revenue, the utility said.

The company plans to divest 7 billion euros of assets this year and next, and start cost-cutting measures totaling about 1 billion euros through 2014 after expenses from the nuclear halts trimmed profit by more than 1 billion euros last year.

RWE is “in very advanced talks” on the sale of its stake in Berlin municipal water and sewer utility Berliner Wasserbetriebe, Chief Financial Officer Rolf Pohlig said in a call with analysts.

EON, which reported results yesterday, said first-quarter profit rose 27 percent after it renegotiated gas contracts and boosted sales in Russia. Earnings from the utility’s trading unit were about 400 million euros higher than a year earlier, helping to soften the impact of reactor closures, EON said.

To contact the reporter on this story: Kari Lundgren in London at klundgren2@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net


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